Nonfarm productivity fell at a 1.9% annual rate last quarter (+0.6% y/y), about the same as during a little-revised Q4. Harsh winter weather and the strike at West coast ports constrained real output. It slipped at a 0.2% rate (+3.5% y/y), after rising 2.6%, while hours worked gained 1.7% (2.9% y/y) following a 4.9% rise. Compensation per hour increased a 3.1% rate (1.7% y/y), the strongest rise in a year. When adjusted for lower prices it improved at a 6.2% rate (1.3% y/y), the largest increase since Q4 2012. The decline in productivity caused unit labor costs to rise at a 5.0% rate (1.1% y/y), the firmest increase in a year.

YoY unit labor costs remain tame at +1.1% but their recent sequential 9.2% acceleration during the last 2 quarters will begin to bite YoY in coming quarters. labor costs are up 4.2% sequentially since Q3’14.

While recent claims data and ISM surveys suggested the labor market retains considerable momentum outside the factory sector, the ADP report could lower expectations for April nonfarm payrolls. This report was yet another sign of weakness in the U.S. manufacturing sector, probably related to a stronger dollar and lower, if more stable, oil prices. Consistent with the “weak factories” story, jobs at goods-producing firms fell 1k, the first outright drop since September 2010. Jobs at service-producing firms rose by a reported 170k, the slowest since August. The outsized proportional decline at large firms — down to 5k from 67k in December — is likely related to the slowdown in the manufacturing and energy sectors.

My point for a while: the strong USD combined with world deflation is making imported goods so cheap in the U.S. that U.S. goods producers can’t compete anymore.

The Mortgage Bankers Association reported that its total Mortgage Market Volume Index declined 4.6% last week (+21.8% y/y), the third decline in four weeks. Refinance applications fell 8.3% (+30.8% y/y) to the lowest level in four months. Purchase applications gained 0.8% (11.8% y/y) to the highest level since June 2013.

Some car makers reported anemic sales growth in April in China, where competition continues to intensify amid a cooling domestic economy.

General Motors Co. said Thursday that it and its Chinese joint-venture partners sold 258,484 vehicles in April, down 0.4% from a year earlier. Ford Motor Co. said it sold 96,889 vehicles in China, only 60 more vehicles sold compared with the year-earlier period. Nissan Motor Co.’s China sales were down 19% from a year earlier to 95,500 vehicles.

Exports of Canadian crude oil declined by a modest 57,000 b/d in February to average 3.046 million b/d, data released late Monday by the National Energy Board showed.

The drop stemmed entirely from a sharp decline in light crude exports, down 89,000 b/d from January’s record-setting levels to 938,000 b/d.

Light Canadian crude oil exports have proven somewhat more variable than heavier grades, falling six times in the past 12 months.

In contrast, heavy crude exports resumed their steady rise, increasing by 32,000 b/d to a new record-high of 2.107 million b/d, surpassing last September’s average of 2.095 million b/d.

February’s dip nonetheless left total exports above 3 million b/d for just the third time in history, and marked a 325,000 b/d increase from the same time last year. Heavy crudes accounted for 275,000 b/d of that growth, but light crudes also increased 49,000 b/d from last February.

Global investment in upstream oil production this year is down around $100 billion, almost 20% lower than in 2014 and the largest drop ever seen, the International Energy Agency’s chief economist Fatih Birol said Wednesday, May 6. The biggest portion of this is in the US, Canada and Brazil, Birol told journalists in Doha.“Especially for shale oil, the decline rates are very steep. Investment decisions have to be taken in a very short time, as they are much more price sensitive”, Birol said.

“At the price level seen at the beginning of this year [around $45/barrel], there will not be many projects in North America that will be profitable,” he said.

This is despite declining supply chain costs which have made US shale producers significantly more efficient. (…)

However, Birol warned that at current prices there were even more risks to investments. Iraq in particular is struggling to meet its obligations to international oil companies, which now form a major portion of its government spending. The country boosted its exports to a record high of more than 3 million b/d in April, but with oil prices averaging $51.7/b for the month, Iraq earned only $4.8 billion, Platts has reported. In July last year, with oil prices at more than $100/b, Iraq earned almost $8 billion. At the same time, payments to oil companies have remained stable, and have taken an unsustainable share in the country’s budget, Platts has reported.Sustained lower budgets and spending on oil could be a broader problem for the region. “It’s not just Iraq. I am concerned about spending in the whole Middle East,” Birol said.

“I would highlight that equity-market valuations at this point generally are quite high,” Ms. Yellen said. “Not so high when you compare returns on equity to returns on safe assets like bonds, which are also very low, but there are potential dangers there.” (…)

Broadly, Ms. Yellen said Wednesday that “risks to financial stability are moderated, not elevated at this point.”

“There was a great deal that we missed before the crisis. I believe we are better prepared,” Ms. Yellen said.

BUY LOW, SELL HIGH

EARNINGS WATCH

424 companies (89.1% of the S&P 500’s market cap) have reported. Earnings are beating by 7.4% while revenues have met expectations.

Expectations are for revenue, earnings, and EPS of -3.1%, +1.3%, and +3.2%. Excluding Energy, growth would be 2.2%, 8.6%, and 10.7%, respectively. This excludes the likelihood of beats for unreported companies.

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